2023-05-05 18:07:54 ET
Summary
- Kinaxis recently reported its Q1 2023 financial results, beating both revenue and earnings estimates.
- The firm provides supply chain planning and management software to companies worldwide.
- Kinaxis' management has guided to strong topline revenue growth, and the company has a debt-free balance sheet while producing good free cash flow.
- My outlook on Kinaxis is a Buy at around CAD$181 per share.
A Quick Take On Kinaxis
Kinaxis Inc. ( KXS:CA ) recently reported its Q1 2023 financial results , beating revenue and earnings per share estimates.
The firm provides supply chain planning and management software worldwide.
Given management's strong forward growth guidance, the firm's debt-free balance sheet and solid free cash flow , my outlook on Kinaxis Inc. at its current price of around CAD$181 is a Buy.
Kinaxis Overview
Kinaxis Inc. is a software company that provides cloud-based supply chain planning and management software. The company was founded in 1984 and is headquartered in Ottawa, Canada. Kinaxis' CEO is John Sicard.
Businesses use the firm's software in a variety of industries, including manufacturing, retail, and healthcare.
Kinaxis' primary offerings include the following:
-
RapidResponse: A cloud-based platform that helps businesses plan, source, and deliver products and services.
-
Demand Driven MRP: Helps businesses optimize their supply chains.
-
RapidPlan: Assists in planning and execution of production schedules.
-
RapidReact: Enables organizations to respond to disruptions in their supply chains.
-
RapidStart: Software for businesses to implement Kinaxis solutions quickly.
Kinaxis acquires new customers through a variety of channels, including direct sales, partnerships with systems integrators, consulting firms, technology companies, and channel partners.
Kinaxis' Market & Competition
According to a 2022 market research report by Verified Market Research, the market for supply chain management software and services was an estimated USD$22.5 billion in 2021 and is forecast to reach USD$56.7 billion by 2030.
This represents a forecast CAGR of 10.9% from 2023 to 2030.
The main drivers for this expected growth are demand for increased supply chain visibility, especially after the disruptions caused by the COVID-19 pandemic.
Also, the chart below from Allied Market Research shows the supply chain management market changes between 2020 and 2030, by solution type:
Major competitive or other industry participants include:
-
Epicor Software
-
HighJump
-
Info
-
IBM
-
JDA Software Group
-
E2open
-
Manhattan Associates
-
Oracle
-
SAP
-
Descartes Systems Group
-
Others.
Kinaxis' Recent Financial Trends
-
Total revenue by quarter has grown per the following chart:
-
Gross profit margin by quarter has dropped in recent quarters:
-
Selling, G&A expenses as a percentage of total revenue by quarter have produced the following trajectory:
-
Operating income by quarter has fluctuated around breakeven:
-
Operating leverage by quarter turned negative in the most recent quarter:
-
Earnings per share (Diluted) have varied recently but with some strong quarterly results:
(All data in the above charts is IFRS and CAD$)
In the past 12 months, Kinaxis Inc.'s stock price has risen 33.36% vs. that of Manhattan Associates, Inc.'s ( MANH ) rise of 43.24%, as the chart indicates below:
For the balance sheet, the firm ended the quarter with CAD$368.5 million in cash, equivalents and short-term investments, and no debt.
Over the trailing twelve months, free cash flow was CAD$38.7 million, of which capital expenditures accounted for CAD$17.3 million. The company paid CAD$38.5 million in stock-based compensation, or SBC, in the last four quarters, the highest in the previous eleven quarters.
Valuation And Other Metrics For Kinaxis
Below is a table of relevant capitalization and valuation figures for the company:
Measure ((TTM)) | Amount |
Enterprise Value/Sales | 9.2 |
Enterprise Value/EBITDA | 126.6 |
Price/Sales | 9.7 |
Revenue Growth Rate | 27.1% |
Net Income Margin | 2.4% |
EBITDA % | 7.2% |
Market Capitalization | $4,870,000,000 |
Enterprise Value | $4,580,000,000 |
Operating Cash Flow | $55,990,000 |
Earnings Per Share (Fully Diluted) | $0.40 |
(Source - Seeking Alpha, CAD$)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
Kinaxis' most recent Rule of 40 calculation was 34.3% as of Q1 2023's results, so the firm has performed fairly well in this regard, per the table below:
Rule of 40 Performance | Calculation |
Recent Rev. Growth % | 27.1% |
EBITDA % | 7.2% |
Total | 34.3% |
(Source - Seeking Alpha.)
Commentary On Kinaxis
In its last earnings announcement (Source - Seeking Alpha ), covering Q1 2023's results, management highlighted a high new customer win rate (without providing metrics) despite an uncertain macroeconomic environment driving some prospects to delay their purchase decisions under greater scrutiny.
The firm recently announced a relationship with HAVI, a company that manages the supply chains of global quick-service restaurant chains.
Total revenue for Q1 rose 11.4% year-over-year but gross profit margin dropped a full eleven percentage points.
SG&A as a percentage of revenue rose seven percentage points, indicating the firm is spending significantly more for each incremental dollar of revenue.
Looking ahead, management guided 2023 total revenue to be CAD$580.5 million at the midpoint of the range, which, if achieved, would represent a 20% revenue growth rate over 2022.
The company's financial position is quite strong, with ample liquidity, no debt, and positive free cash flow.
Regarding valuation, the market is valuing KXS:CA at an EV/Sales multiple of around 9.2x.
The Meritech Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 5.5x on April 27, 2023, as the chart shows here:
So, by comparison, Kinaxis is currently valued by the market at a substantial premium to the broader Meritech Capital SaaS Index, at least as of April 27, 2023.
The primary risk to the company's outlook is the potential for a macroeconomic slowdown, which may reduce trade activity, lengthening sales cycles, and reducing revenue growth.
In the past twelve months, the firm's EV/Revenue valuation multiple has bounced around within a range, but made no net headway, returning to slightly above 9x, as the chart from Seeking Alpha shows below:
A potential upside catalyst to the stock could include a pause in central bank interest rate hikes, reducing downward pressure on valuation multiples across the technology vertical.
Given Kinaxis Inc. management's strong forward growth guidance, the firm's debt-free balance sheet, and solid free cash flow, my outlook on Kinaxis at its current price of around CAD$181 is a Buy.
For further details see:
Kinaxis Is Primed For Further Growth And Upside